Monday, June 08, 2015

‘Quad Play:’ Remedy for the failed "triple play" business model as Title II universal service obligation kicks in?

Are Americans Ready to Pay for ‘Quad Play’? - WSJ: A combination of T-Mobile US Inc. and Dish Network Corp. would merge two companies rooted in different industries.

For consumers, it would merge some of the fastest-growing bills in their budgets.

American households spent more than $191 a month on average for television, Internet and phone services in 2013, according to Labor Department data. That was up 24% from 2007 and about what they spent on health insurance.

The question is whether Americans are going to take to paying all that to one company. The prospect isn’t so far-out anymore. With satellite broadcaster Dish Network pursuing a merger with wireless carrier T-Mobile US, AT&T Inc. about to close a $49 billion acquisition of Dish rival DirecTV and cable companies experimenting with cellphone plans, many of the services that keep people entertained and in touch are moving under the same roof.

Such providers are betting on so-called convergence—the idea that they will be better off if they can bulk up, as services that used to flow via different wires and satellite dishes all start traveling on the Internet.

It makes technical sense to deliver all these telecommunications services via Internet Protocol (IP). But there's a disconnect between Internet technology and economics. Many homes and small businesses are not offered landline premise Internet service since the economics of the current "triple play" business model (phone, Internet and TV) don't pencil when the costs of infrastructure CAPex and OPex are factored in.

Will bundling in mobile wireless to create a "quad play" offering improve the business case? One might think so when there's ARPU approaching $200 a month. And it might well better once new rules issued by the U.S. Federal Communications Commission go into effect this month classifying Internet as a telecommunications service under Title II of the Communications Act.

Title II subjects Internet service providers to universal service and nondiscrimination requirements and bars ISPs from redlining higher cost neighborhoods not offered triple play services. That in turn increases the pressure on ISPs to consolidate to ensure they can offer these all inclusive service bundles under their preferred vertically integrated business models where they own both the Internet "pipe" to the home and the services delivered over it.

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